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Anne
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2355
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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1. Can I loan $122,000 equipment (medical laser)

Customer Question

1. Can I loan $122,000 for business equipment (medical laser) to my son via a lease I create instead of a personal loan for his laser tattoo removal business?
I understand he can deduct his monthly payments on an equipment lease as a tax write-off instead of just depreciating the equipment.
2. Is there special language or a form for writing up an equipment lease?
3. Can he also claim section 179 deduction of $25,000 on the equipment even if he has a lease instead of the loan? He is purchasing the equipment next month.
4. He is starting his business in Sept. If he does not make enough to cover the section 179 election, can it carry over to next year?
Submitted: 1 year ago.
Category: Tax
Expert:  Anne replied 1 year ago.
Hi
I'm Anne. I've been preparing taxes for 27 years, and I'll be helping you today.
Since you are not in business with your son, you can not characterize this loan as a business loan. It is a personal loan for you.
If your son agrees, you two could create a Partnership, with him as the "General Partner", meaning he's the one that's actively working, creating income for the business. You would be a "Limited Partner" investing "$"in the business. The Partnership can then pay you back through distributions from the business. (See Form 1065, http://www.irs.gov/pub/irs-pdf/f1065.pdf)
Your son may take the depreciation and/or Section 179 for the equipment.
The section 179 is generally only available the first year that your son puts the machine into use, however he must have enough income to offset the Section 179. This income limitation includes W2 wages that he or his spouse (if filing jointly)
If your son does not have enough income to offset the 179 deduction, he can carry it over to the next year.
If you have any questions, please post them here and I'll be notified.
If this has answered your question, please take the extra minute to rate positive ( by clicking on the smiley faces or stars) so that I will be given credit for working with you today.
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Customer: replied 1 year ago.
I do not plan to be in the business with my son as a partner or investor. I am only planning to loan the money. It is ok if it is called a "personal loan" from my end; I am specifically interested in knowing if I can call it a "lease" like a $1.00 buyout lease, for example. My question is whether I can write up the loan as a "lease" like an equipment finance company does so that my son can claim the whole monthly payment as an expense write-off on his taxes. It is my understanding that he cannot write off the monthly loan payments on his taxes as expenses, only depreciation, if it is a standard loan.
Therefore I am interested in putting a "leasing" contract together so monthly payments in full can be written off. The bank/finance co. is not in business with my son either, but can write up a lease. I am trying to avoid my son having to pay 30% interest to a finance company for a lease. These companies use outside sources for their money-lending. So I want to be the outside source to loan the money at a very reasonable interest rate and terms.
If I can write a lease agreement, like one would write a lease for a house for a tenant, then I need to know if there is a form for that or do I create my own "money lending" lease format.
Expert:  Anne replied 1 year ago.
I apologize that I misunderstood your question. However,no matter what kind of loan your son has, whether through a bank loan or from you,the principle portion of loan payments are never deductible.
Your son must depreciate the total cost (plus interest) on the machine.
Please see the following URL's
http://www.bizfilings.com/toolkit/sbg/tax-info/fed-taxes/depreciation-computation-steps.aspx
http://www.irs.gov/pub/irs-pdf/p946.pdf
As stated in my above posting,your son may use Section 179 for part or all of the purchase price:
"Your son may take the depreciation and/or Section 179 for the equipment.
The section 179 is generally only available the first year that your son puts the machine into use, however he must have enough income to offset the Section 179. This income limitation includes W2 wages that he or his spouse (if filing jointly)
If your son does not have enough income to offset the 179 deduction, he can carry it over to the next year."
If you have any questions, please post them here and I'll be notified.
If this has answered your question, please take the extra minute to rate positive ( by clicking on the smiley faces or stars) so that I will be given credit for working with you today.
It is only through positive ratings that we are compensated for our time and knowledge
Thank you for choosing justanswer.
Customer: replied 1 year ago.
This information you gave only applies to a standard loan for equipment. I am asking about a "lease" to pay for equipment, not a "loan." All the equipment finance companies that create "leases" for the equipment money-lending indicate that the monthly payments for the "lease" are expensed as deductions at the end of the year. So the info you gave is only for a loan, not for a lease. This does not help me understand whether I can be the "leasing company" instead of the bank and how to set that up. I have found forms online as to equipment leasing and will pursue those with a local CPA. It does not seem that you are aware of the equipment "lease" options available that will allow for equipment lease payments to be expensed for tax purposes. FMV (fair market value) leases are one type. I will need to pursue this with a local CPA. My question is still not answered and your answer implies that he is only pursuing a "loan", not a "lease" and both a "loan" and a "lease" for equipment are treated differently for tax purposes.
Expert:  Anne replied 1 year ago.
I will "opt out" so that this goes back on the board as an open question for any tax pro to pick up.
Thank you for choosing justanswer.

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